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US Chemical Industry Set for Strong Rebound in 2021: 5 Picks

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The American chemical industry has pulled off a comeback from coronavirus-induced challenges and is poised for an upswing in 2021, according to the newly released “Year-End 2020 Chemical Industry Situation and Outlook” by the American Chemistry Council (“ACC”).

The Washington, DC-based chemical industry trade group said that the recovery in the domestic chemical industry that started in the third quarter on the back of an improvement in major end-use markets continues to take hold and the outlook for the next year is positive backed by solid fundamentals. U.S. chemical production has gained momentum after being hit by weaker demand, supply disruptions and falling revenues resulting from the pandemic.
 
The U.S. chemical industry reeled under the effects of global manufacturing slowdown, protectionist trade policies and uncertainties surrounding the U.S. elections. Chemical production slipped as the pandemic hurt businesses, the ACC noted.  However, the industry benefited from higher demand for inputs that are used to make products (including personal protective equipment, plastic packaging, disinfection and sanitation products) used in the global fight against the pandemic.
 
According to the ACC, performance among chemical sectors was mixed in 2020. Plastic resins was the only segment to witness positive growth during the year given its role in pandemic-related solutions. Declines were witnessed in other basic chemical segments. Moreover, specialty chemicals saw demand slowdown in nearly all functional and market segments. The trade group envisions a strong rebound in 2021.

Total domestic chemical production volumes (barring pharmaceuticals) slipped 3.6% this year, per the ACC. Chemical volumes are, however, predicted to bounce back to a 3.9% growth next year. Basic chemicals production is also forecast to rebound to a 5% growth in 2021 after declining 1.3% in 2020. Rising demand, stabilizing export markets and the competitive advantage linked to domestic supplies of shale gas and natural gas liquids are among the factors that are expected to contribute to the upswing.

Industrial production is also expected to increase 3.7% in 2021 after falling 6.9% in 2020 on declines across almost all sectors. Nearly all industries are expected to see growth with biggest gains in motor vehicles, aerospace, appliances, iron and steel, petroleum refining, and plastic and rubber products.

On the chemical end-use market front, light vehicles sales are witnessing a V-shaped recovery with a projected rise to 16 million units in 2021 from just 14.4 million expected in 2020. Moreover, housing starts are projected to increase to 1.38 million next year from an expected 1.34 million units in 2020 supported by low mortgage rates and job and income gains, the trade group noted.

Meanwhile, U.S. chemical exports are predicted to drop 9% to $124 billion in 2020 amid the pandemic. However, exports are projected to rebound to $134.5 billion in 2021. The ACC also envisions total chemical trade to recover to $240 billion in 2021 after shrinking 7% to $220.8 billion this year.

5 Top Chemical Stocks for 2021

The U.S. chemical industry is looking up from the pandemic-led slump and is poised for an upturn next year on a rebound across major end-markets and a recovery in chemical exports. Amid such a backdrop, it would be prudent to invest in chemical stocks with compelling growth prospects if you are looking to reap solid returns from your portfolio in 2021.

We highlight the following five stocks with Zacks Rank #1 (Strong Buy) or 2 (Buy) that are good options for investment right now.

Cabot Corporation (CBT - Free Report)

Massachusetts-based Cabot sports a Zacks Rank #1. Cabot has expected earnings growth of 61.5% for fiscal 2021. Moreover, the Zacks Consensus Estimate for fiscal 2021 earnings has been revised 24% upward over the last 60 days. The company has also delivered an earnings surprise of 17.2% in the last reported quarter. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Chemours Company (CC - Free Report)

Based in Delaware, Chemours carries a Zacks Rank #2. The company has expected earnings growth of 40.3% for 2021. Moreover, the consensus estimate for earnings for 2021 has been revised 16% upward over the last 60 days. The company has also surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average being 54.1%. The stock has also rallied 47% so far this year.

Element Solutions Inc (ESI - Free Report)

Florida-based Element Solutions has a Zacks Rank #2. The company has expected earnings growth of 16.7% for 2021. The Zacks Consensus Estimate for earnings for 2021 has also been revised 12.4% upward over the last 60 days. The company has also surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average being 18.4%. The company’s shares are also up 38% year to date.

Trinseo S.A. (TSE - Free Report)

Based in Pennsylvania, Trinseo has a Zacks Rank #2. It has expected earnings growth of 220.3% for 2021. The Zacks Consensus Estimate for earnings for 2021 has also been revised 97.3% upward over the last 60 days. The stock is also up around 16% year to date.

Quaker Chemical Corporation (KWR - Free Report)

Pennsylvania-based Quaker Chemical carries a Zacks Rank #2. It has expected earnings growth of 46.8% for 2021. The consensus estimate for earnings for 2021 has been revised 1.3% upward over the last 60 days. The company has also surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average being 50.3%. Moreover, its shares have rallied around 54% so far this year.

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